Here Are The Loopholes Closed By The Music Modernization Act

President Trump after signing the Orrin G. Hatch-Bob Goodlatte Music Modernization Act on October 11. (Photo by Oliver Contreras - Pool/Getty Images)

With a presidential signature this morning, the Music Modernization Act — now officially called the Orrin G. Hatch-Bob Goodlatte Music Modernization Act of 2018 — has become law, having passed the Senate last month. This is the largest piece of copyright legislation to pass in decades, although its purpose is to plug holes in existing copyright law rather than effect a sweeping overhaul.

The act was originally introduced as a compendium of four separate pieces of legislation, each directed at a specific loophole in music copyright law. During the bill's journey through Congress, one of those pieces disappeared: the previously named Fair Play Fair Pay Act, which would have required AM/FM broadcasters to pay royalties to record labels and recording artists, as digital radio services such as Pandora and Sirius XM do. Fair Play Fair Pay got lumped into the MMA earlier this year despite fears that lobbying pressure from the National Association of Broadcasters would hinder its progress through Congress; those fears proved correct, and the Fair Play Fair Pay provisions were dropped.

Otherwise, the MMA achieved unanimous approval in both houses of Congress after much drama within the music industry but ultimately few major changes from the original version in the House.

The centerpiece is a set of changes to an area of music copyright called mechanical licenses for musical compositions. This is one of a few types of license that interactive digital music services such as Spotify, Apple Music and Amazon Music Unlimited must take to music in order to make it available legally on their services. Specifically, a "mechanical" is a license to copy and distribute a musical composition (music and lyrics), written by one or more songwriters and administered by music publishers. Music services must also take separate licenses to sound recordings of those compositions, created by recording artists and administered (in most cases) by record labels.

The loophole that the MMA fills has to do with the massive amounts of paperwork and royalty processing that digital music services have to handle in order to comply with existing mechanical licensing law — and the legal risk that they incur if they get any of it wrong. These music services take in tens of thousands of new tracks every day and must license them properly; Apple and Spotify have both found themselves on the receiving ends of lawsuits for alleged errors in mechanical licensing.

The MMA solves this problem by relieving the music services of the responsibility for all that paperwork and putting it in the hands of a single non-profit mechanical licensing agency that the U.S. Copyright Office will set up within the next nine months. Interactive digital music services must simply agree to a few conditions and sign up for what the law calls a blanket license (a license to all copyrighted music instead of each composition individually). Then they will report music play activity and pay periodic fees to the mechanical licensing agency, which will pay royalties to the rights holders.

As a result of this, digital music services will reduce their overheads — Google bought an entire company called RightsFlow in 2011 to handle this royalty processing — and virtually eliminate their legal risk from mechanical licensing issues. In exchange, the music services have agreed to some changes in the way the royalties are set (by a group of administrative law judges in the Copyright Office) and will likely be paying higher royalties in the future.

Although various interest groups expressed concerns during the legislation's trip through Congress, the main constituencies — music publishers, songwriters and digital music services — are happy with the outcome. Lingering concerns are being raised about the nature of the single mechanical licensing agency and its incentives (or lack thereof) to ensure accuracy and accountability in royalty payments, but the Copyright Office will hear those concerns in the coming months and act accordingly.

The MMA also closes two other loopholes in music copyright law. One is to assign federal copyright to sound recordings made before 1972 — which previously had copyright protection under a patchwork of state laws. This should bring to an end a spate of disputes over royalty payments from various music services over alleged non-payment of royalties on older recordings. The other main provision of the MMA ensures that royalty payments go to producers and featured artists on sound recordings, codifying what had been a conventional practice for some time.

Bill Rosenblatt runs GiantSteps Media Technology Strategies, a consultancy that focuses on digital media technology, business models, and copyright. Check him out on LinkedIn or Twitter.